Wednesday, September 2, 2009

Peter Schiff Calls Out Cash-for-Clunkers

Peter Schiff has an article full of second-rate sarcasm, but good economic analysis regarding the recently concluded government boondoggle commonly known as the cash-for-clunkers program.

http://www.europac.net/externalframeset.asp?from=home&id=17052&type=schiff

In it, he mentions the major flaws inherent in the program:
  • Capital: many of the cars destroyed under the program still functioned and their destruction represented an unnecessary loss of net capital.
  • Resources: replacement cars did have better fuel economy, but if the idea was a net reduction in resource consumption, it is incredibly difficult to overcome the consumption cost of building a new car (before it is necessary... OK, "necessary") through gains in fuel economy. Building a car requires an enormous investment of resources.
  • Financial: the program encourages Americans to assume more consumer debt. Americans, as a whole, do not need any additional consumer debt.
  • Moral hazard: People who have already made the government approved decision to buy vehicles that consume less fuel are now subsidizing those who previously haven't. If fuel efficiency is indeed a virtue, it is unjust to demand that those who choose to behave virtuously pay to incentivize those who would apparently, left to their own devices, never do so.
While I prefer my sarcasm to be less of the earnest, smarty-pants high school senior variety that he employs at the beginning of the article, I cannot fault his analysis. Build unnecessary stuff and save the environment! More debt for all! Punish the early adopters! This is, according to many analysts that I hear on the news, the result of a massively successful government program. Makes you afraid to analyze the unsuccessful ones.

6 comments:

ish said...

I won't argue too much with this apart from saying that the real criticism is toward a modern capitalist consumption culture. The way the economy comes out of recession, the way jobs are created, and the way people maintain the standard of living that comes from being an American are all based upon excess use of resources, over-consumption, and large amounts of consumer debt.

You can argue that our economy should not be structured that way, and I'd agree, although obvious alternatives don't present themselves. But to argue that the government is inept for responding to the reality of the current system seems a bit of a stretch.

Unless you know of another way to create a high percentage of year after year GDP growth by encouraging people to pay off debt and avoid purchasing new things. But I don't know of one. We appear to be caught in an "economy bubble" and the only way for a real correction is a vast drop in standard of living for the majority of the country. I don't see many people signing up for that, and I see even fewer politicians volunteering to force it on their districts.

The Really Sarcastic Weasel said...

There's no nod to reality here. Zombie corporations that need to die. We can have big pain now or giant pain later. Fiddling lets us choose giant pain... Which we always choose.

We have a societal inability to plan, delay gratification, or make adult decisions. Capitalism can blow bubbles but not like our insane coupled feudal/capitalist/public system.

Your arguement seems to be: consumer capitalism is the best available system, capitalism is doomed to fail, self restraint is for losers.

Bah.

ish said...

The argument is better phrased:

-Consumer capitalism has been the only system capable of creating the vast improvements of standard of living that we enjoy.

-Due to all the problems you obliquely touch on in Cash for Clunkers that are actually endemic to all of consumer capitalism, it is doomed to fail because it is unsustainable

-Coordinated self-denial is politically unfeasible, as it requires an intentional lowering of one's own standard of living, which has an opposite directionality to human nature and societal progress

I have lived without a home or car for 3 years and have purchased only those things that I could afford from cash I earned working and haven't acquired next to nothing that I can't carry with me. So I know plenty from self-restraint, thanks. But that has nothing to do with the fact that collective self-restraint on the part of the majority of US citizens would be the death of the US economy as currently structured. I'm not arguing that the current structure is great. But it is current.

So again, it seems to me your argument against Cash for Clunkers is really an argument against consumer capitalism. Within the bounds of consumer capitalism, it is successful. Some masochistic and rationally pure part of me may wish for an Administration that would willingly lower the standard of living of all citizens in order to forestall an amorphous future crisis. But it's a little insane to expect that any system made up of popularly elected representatives would do so, isn't it?

ish said...

It occurs to me that there is a particularly apt piece of "street wisdom" that sums up my argument:

"Don't hate the playa, hate the game."

The Really Sarcastic Weasel said...

Yeah, I haven't even gotten to your axioms yet...

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